Question

Inferring Transactions from Financial Statements
Lowe's is the second-largest home improvement retailer in the world, with 1,857 stores. During its 2015 fiscal year ended in January 2016, Lowe's purchased merchandise inventory at a cost of $39,051 ($ millions). Assume all purchases were made on account and accounts payable is only used for inventory purchases. The following T-accounts reflect information contained in the company's 2014 and 2015 balance sheets.

Merchandise Inventories
2014 Bal.	8,911
2015 Bal.	9,458

Accounts Payable
		5,124	2014 Bal.
		5,633	2015 Bal.

a. Use the financial statement effects template to record Lowe's purchases during fiscal 2015. Use a negative sign with answers, if appropriate.

						Balance Sheet								Income Statement
Transaction		Cash Asset	+	Noncash Assets	=	Liabilities	+	Contrib. Capital	+	Earned Capital		Revenues	-	Expenses	=	Net income
Purchase of inventory on account		Answer		Answer		Answer		Answer		Answer		Answer		Answer		Answer

b. What amount did Lowe's pay in cash to its suppliers during fiscal-year 2015?
Answer million

c. Use the financial statement effects template to record cost of sales for 2015. Use a negative sign with answers if appropriate.

Answer 1

a)

						Balance Sheet								Income Statement
Transaction		Cash Asset	+	Noncash Assets	=	Liabilities	+	Contrib. Capital	+	Earned Capital		Revenues	-	Expenses	=	Net income
Purchase of inventory on account				39,051		39,051

b)

Cash paid to suppliers = Accounts payable, beginning + Purchases - Accounts payable, ending

= 5,124 + 39,051 - 5,633

= $38,542 millions

c)

Cost of sales = Cash payment to suppliers -  Increase in inventory + Increase in accounts payable

= 38,542 - (9,458 - 8,911) + (5,633 - 5,124)

= 38,542 - 547 + 509

= $38,504

						Balance Sheet								Income Statement
Transaction		Cash Asset	+	Noncash Assets	=	Liabilities	+	Contrib. Capital	+	Earned Capital		Revenues	-	Expenses	=	Net income
Cost of sales				- 38,504										38,504